Considering the privatization option, whether or not the final decision is to actually
do it, is nothing less than good stewardship of the public purse. Thinking seriously about
it prompts officials to open their minds and think about government services in ways they
never pondered before. It forces them to find out, for instance, how much it is actually
costing them to provide those services.

Considering the privatization option, whether or not the final decision is to
actually do it, is nothing less than good stewardship of the public purse.

Most people don’t realize that governments keep their financial books in what can
only be described as a state of confusion. Rarely are all the appropriate costs of an
activity or department actually charged to it. For example, a county sheriff in Michigan
once boasted that he could house prisoners for a mere $17 a day, but a few follow-up
questions revealed many things he wasn’t counting because "some other
department" took care of them—costly items such as custodial work to keep the
jail clean and the pension obligations payable to jail employees.

Examples of privatization are everywhere and most of them have been successful, some
stunningly so. Dozens of studies verify the effectiveness of privatization when it is done
with appropriate thought and care. Articles and monographs are proliferating, advising
officials of the pitfalls to avoid and the strategies that work. There is simply no
denying that privatization is indeed a major trend now and that each new experience
teaches us even more about how to maximize its benefits.

Objections to it, however, are still heard and sometimes loudly. Here are the most
common ones, along with brief responses:

Privatization is anti-public employee. As the experience of innovative cities
like Indianapolis and Phoenix proves, strategies can be devised that actually involve
public employees in a positive way. But ultimately, we must remember that government
does not exist for the benefit of those who work for it; it exists for the benefit of
those who pay its bills or need its services. Governments that employ more people than
necessary, or that pay their employees more than their market will bear, are not doing any
favors for the citizens—including the poor—who are picking up the tab.

Privatization is a back door way to hobble or destroy government. IndianapolisMayor Stephen Goldsmith says that before he privatized some 60 city services, it was
extremely difficult to resolve citizen complaints or get the bureaucracy to move on
anything. Once a service is privatized, accountability is almost instantaneous. If
performance suffers, the city can quickly cancel the contract. Because of that, says the
mayor, government officials like him are actually empowered, not hobbled. They can
"shop around," just like ordinary consumers, and thereby find the best buys.

There are instances where privatization didn’t work, so we shouldn’t do it
anywhere. I have yet to see a case where a failure was really an indictment of
privatization itself. Failures are almost always arguments for avoiding poor practices,
such as noncompetitive bidding in smoke-filled backrooms, sloppy contract writing, or
nonexistent monitoring of performance.

Privatization can breed special interests who will lobby for more contracts and
services from government, even when that’s not warranted. Public bureaucracies
lobby for more government too. This is an argument for taxpayers and the press to be
vigilant, not an argument against privatization.

Government officials may not do the right thing with the savings. It’s true
that when privatization generates lower costs, officials may have multiple options for
realizing the gain. They may choose to avoid raising taxes or actually cut them, passing
the savings on to taxpayers. Or, they may simply take the savings and squander them on
some other dubious public enterprise. This is, again, an argument for vigilance,
not against privatization.

A better and leaner public sector is much more than a bipartisan, good
government issue.

All citizens who value freedom, a strong economy, responsible and accountable
government, and affordable public services of high quality should be encouraged by the
growing number of public officials embracing privatization. A better and leaner public
sector is much more than a bipartisan, good government issue. It is an imperative that
when accomplished will leave us a freer, more responsible, and better-served people.

Perception Versus Reality: Private
Successes and Politicized Failure

Sometimes privatizations that are touted as failures are not
failures at all. Consider the troubles of Education Alternatives, Inc. (EAI).

EAI
signed a five-year, $44 million contract in 1992 to operate nine inner city schools in
Baltimore. The company was in charge of management, computer instruction, and
administration services. On November 22, 1995, city officials canceled the contract. It
was a major setback for this particular firm. The New York Times summarized the
problem well. Here is a revealing paragraph:

Baltimore’s Mayor, Kurt L. Schmoke, recommended on Tuesday that the commissioners
cancel the contract after Education Alternatives rejected a demand that it accept $7
million less a year, 16 percent of its 44 million-a-year contract, to help Baltimore meet
a shortfall in its budget.

In other words, the politicians were saying this: "Our mismanagement of other
budgets for such things as streets and sewers has put us in financial trouble. We decided
to fix our problem by taking it out on the schools. Even though we have a contractual
obligation to a private firm and are not claiming that it has failed to live up to the
agreement, we decided to cut its pay by $7 million anyway. We can get away with this
because we are the government."

EAI did not fail in its attempt to improve Baltimore schools. Local politicians did.
They saw EAI as a cash cow instead of a vehicle for improving education. The experience in
Baltimore is a reminder that public-private partnerships can fail if done incorrectly. In
this case, privatization itself did not fail. The process did. The contract between
Baltimore and EAI was poorly written. It gave government an easy out and they took it.